All Essential Options for the Best Factoring Program for You Now

The lack of liquidity is one of the main problems suffered by companies today. On many occasions, this lack is due to late payments, delays in collections by customers, and even insolvency, which has been dragging on since the worst years of the economic crisis.

A figure that illustrates this problem is that during the first 10 months of the year the number of insolvency proceedings arising from a business insolvency situation increased by almost 2% to reach 3,749. That is why it is not surprising that many companies, especially SMEs, maintain their concern about the collection of their commercial loans. Through the Alliance One factoring program the options have become easier now.

What is factoring

The factoring born alleviates this uncertainty. It is a very useful financing tool for all companies that need immediate liquidity and prefer to pay a commission to avoid surprises when it comes to collecting the commercial loans that are pending.

There are three protagonists in factoring: on the one hand there is the company that generates the commercial credit and hires the factoring service. In second place is your client, who owes you that commercial credit, and finally the financial entity, in charge of carrying out the operation.

In a conventional factoring service, our company transfers to the financial entity, in whole or in part, the short-term commercial loans to its customers, that is, the invoices that remain for entering. In exchange for this assignment, the entity advances the amounts of these invoices automatically and discounts a percentage in concept of interest and commissions. The result is that our company is guaranteed immediate receipt of the invoices owed to it, while the financial institution is responsible for its collection in exchange for a commission.

But obtaining immediate liquidity is not the only advantage. This tool improves the control of posted invoices and allows companies to shed the risk of insolvency, in the case of factoring without recourse. In this way, if our client does not have funds to pay for the service we have provided, it is the financial entity that assumes that default and who manages it.

In addition, it improves the working capital of our company because it allows us to eliminate the factored customer items from the balance sheet.

Factoring helps us to dedicate ourselves to what is ours without worrying about managing the collection of outstanding invoices or knowing if we have sufficient liquidity to continue growing.

Types of factoring

But not all situations are the same nor do all companies have the same needs. And for that there are two types of factoring:

Factoring without recourse

This formula frees the companies from any responsibility in the management of the pending collection. In this way, if the debtor cannot deal with the invoices issued and approved in the factoring operation, it is the financial entity that assumes the losses and the one that has to start the necessary procedures to try to recover the money. In summary, it is the entity that assumes the risk of insolvency on the part of the debtor.